Cryptocurrencies are one of the hottest investments around at the moment and Bitcoin is the most popular and heavily traded digital asset. However, buying and selling this crypto asset isnt easy.
Transaction costs
If you want to trade the Bitcoin price, you first have to open an account with a digital exchange, which can take a few days. You will also have to pay commission on any deal, as well as currency translation costs. Some sites have minimum charges of $15 per deal.
These arent the only issues you might face if you try to trade the Bitcoin price. Ive heard of transactions being held up for days and the price moving substantially in the meantime. In the worst cases, some traders have lost 50% of their investments just through market movements and trading fees. Thats not to mention the risks of theft and fraud. Tens of millions of dollars of Bitcoins have already been lost to theft this year alone.
So, if you want to play the Bitcoin price, buying the currency might not be the best way to do it. Instead, I think you could be better off investing in a company that has exposure to the Bitcoin and cryptocurrency industry.
Crypto companies
Theres a handful of companies that have exposure to cryptocurrency, most of which are listed in the US, although theres one or two listed in London. One of these is KR1.
Listed on Londons NEX Exchange, KR1 bills itself as Europes leading publicly-listed investment company focused on blockchain and decentralised technologies. This business is tiny, with a market-cap of less than 10m and relatively illiquid, so its not suitable for everyone.
Nvidia might be a better option. Its greatly profited from the outburst of cryptocurrency popularity as a lot of miners use products from Nvidia for Bitcoin mining. Wall Street estimates that demand for these processors has translated into more than $1.5bn of extra income for Nvidia over the past few years.
The company is listed in the US, so youll need a US brokerage account (or UK account that has access to US shares) to invest. But with a market capitalisation of nearly $10bn and other income streams as well as crypto, it could be worth the extra effort if you want to play the Bitcoin price.
Easier to value
These are just two of a handful of companies I think could be good ways to play the Bitcoin price. The added bonus of investing in a business with Bitcoin links rather than the cryptocurrency itself is that its easier to value companies.
As Bitcoin has no underlying cash flows, it is only worth as much as someone else is willing to pay, which can mean the price is volatile. Companies such as Nvidia dont have this problem theyre always generating cash from sales, and have valuable intellectual property worth billions of dollars.
That being said, here at the Motley Fool, we believe investors should always make investing decisions with a long-term outlook, and not chase trends. With this being the case, a better all-round investment might be a simple FTSE 100 or FTSE 250 tracker fund as this will give you a portfolio of international stocks diversified across many sectors and industries, plus a more reliable return to help you get rich slowly.
